Nudging Payment Behavior: Evidence from a Field Experiment on Pay-as-You-Go Off-Grid Electricity

Abstract

Abstract This paper reports results from a randomized control trial with a pay-as-you-go (PAYG) solar system provider in Pakistan. In the default treatment, customers are told the amount to pay every month to keep the system active. In a first treatment, customers are assisted in planning this monthly payment. A second treatment discloses that payments can be made flexibly within the month. This disclosure may reduce contract cancellation by helping minimize transaction costs but may increase contract complexity and reduce discipline. A third treatment combines flexibility with assistance in planning payments. Disclosing flexibility increases contract cancellation relative to the default, but combining flexibility with planning offsets this effect. Treatment effects appear stronger among users facing high mental constraints and transaction costs. These findings support the idea that behavioral factors, such as inattention and commitment problems, lay behind the negative impact of flexibility on cancellation. The results suggest that providers of PAYG systems may face a trade-off between disclosing complex contractual features and customer retention. Planning helps customers handle the added complexity.